24 Jan 2012, 17:38 Markets Down As Debt Talks Falter

Stock markets down as Greece debt talks falter

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European stock markets have opened lower as eurozone finance ministers continue to put pressure on Greece's private creditors to accept a lower interest rate on their loans to Athens.

Share indexes in the UK, France and Germany fell 0.5% in early trading.

Late on Monday, ministers said creditors must accept a lower rate than the 4% they had offered and called on both parties to reach a deal this week.

A deal is necessary for Greece to receive the bailout funds it needs.

Without the funds, Athens will not be able to make billions of euros of loan repayments due in March.

Ministers confirmed that 130bn euros ($169bn; £108bn) was available for the country, but also called on Greece to accelerate structural reforms to strengthen its economy before funds would be released.

Lower rates

The finance ministers, headed by Luxembourg's Prime Minister Jean-Claude Juncker, said they welcomed progress made in the talks between Athens and its private creditors, but called for an agreement "in the next few days".

Mr Juncker also made clear that ministers backed Greece over the rate of interest it should pay on new bonds that will replace existing bonds held by creditors.

"Ministers asked their Greek colleagues to pursue negotiations to bring the interest rates on the new bonds to below 4%, which implies the interest comes down to well below 3.5%," he said.

Private creditors have, so far, refused to go below 4%.

"The goal is to reduce [Greece's] debt from 160% of GDP now to about 120% by the end of the decade," said the BBC's Europe correspondent, Chris Morris.

"The current offer, which representatives of the banks had suggested was final, would not achieve that goal."

Ministers reiterated that a deal with private creditors was essential for the European Commission, European Central Bank and International Monetary Fund to release further bailout funds.

"Greece and the banks have to do more in order to reach a sustainable debt level," said Dutch Finance Minister Jan Kees de Jager.

"And we have to await the discussions about that because a sustainable debt level is absolutely a precondition for the next programme [of bailout funds]."

Debt deadline

The finance ministers said they expected Greece's creditors to accept a nominal 50% cut to the value of the loans they have made to Greece.

The Institute of International Finance (IIF), which represents Greece's private sector creditors, said a technical team would continue to work further on the details of an agreement.

European leaders agreed in principle last year that private lenders would voluntarily write off 50% of their loans to Greece, but private creditors still need to agree the precise terms of the deal.

The 130bn euro rescue package is crucial if Greece is to meet its next debt repayment deadline.

Without the bailout, Greece would not be able to pay back 14.5bn euros of maturing bonds in March.